Aavas Financiers posted a 23% year-on-year profit growth to ₹1.7 billion for the first quarter of FY27. While net interest income rose 17%, the company faced higher credit costs compared to the same period last year. Investors are balancing this earnings growth against the brokerage's neutral outlook.
Detailed Coverage
Aavas Financiers, a housing finance company focusing on low- and middle-income segments, reported its financial results for the quarter ending June 30, 2026. The company achieved a profit after tax of approximately ₹1.7 billion, representing a 23% growth compared to the same quarter of the previous fiscal year. Net interest income, which is the difference between interest earned from loans and interest paid on deposits or borrowings, increased by 17% to reach ₹3.2 billion.
Operational efficiency showed improvement as the company’s cost-to-income ratio settled at 44.1%. This reflects a decline from 46.2% in the preceding quarter and 46.6% in the same period a year ago. Operating expenses grew by 10% year-on-year to ₹1.8 billion, a figure that came in slightly below industry estimates. The pre-provision operating profit, a key metric for gauging core business profitability before accounting for potential bad loans, rose 22% to ₹2.3 billion.
While the company showed revenue growth, credit costs—the amount set aside to cover potential losses from loan defaults—rose to ₹128 million. This represents an annualized credit cost of 22 basis points. This is higher than the 12 basis points reported in the first quarter of FY26 and is consistent with the cost levels observed in the previous quarter. The company reported a return on assets of 3.2% and a return on equity of 13.3% for the quarter.
Motilal Oswal has maintained a neutral stance on the stock, setting a target price of ₹1,650 based on a valuation of two times the estimated FY28 book value per share. The brokerage forecasts a compound annual growth rate for assets under management and profit after tax of approximately 18% and 16%, respectively, through FY28. Future investor monitoring will focus on whether the company can maintain its return on assets and return on equity levels, which are projected to reach 3.3% and 14.2% by FY28, alongside its ability to manage credit costs in a changing interest rate environment.